13.3 The Master Budget Flashcards
The master budget is also called
the comprehensive budget or annual profit plan
The _________ budget encompasses the organization’s operating and financial plans for a specified period (ordinarily a year or single operating cycle)
Master budget
In the _______ budget, the emphasis is on obtaining and using current resources.
Operating budget
In the ________ budget, the emphasis is on obtaining the funds needed to purchase operating assets.
Financial budget
A company uses a comprehensive planning and budgeting system. The proper order for the company to prepare certain budget schedules would be
A. cost of goods sold, income statement, balance sheet, and statement of cash flows
B. Income statement, balance sheet, statement of cash flows, and cost of goods sold
C. Statement of cash flows, cost of goods sold, income statement, and balance sheet
D. Cost of goods sold, balance sheet, income statement, and statement of cash flows
A. Cost of goods sold, income statement, balance sheet, and statement of cash flows
The budget that describe the long-term position and objectives of an entity within its environment is the
strategic budget
________ budget is a short-range management tool
Operating budget
_________ budgeting involves evaluating specific long-term investment decisions
Capital budget
_____________ budget is a short-range consideration related to liquidity
Cash management budget
Which of the following is normally included in the financial budget of a firm?
A. Budgeted balance sheet
B. Selling expense budget
C. Sales budget
D. Direct materials budget
A. Budgeted balance sheet
The financial budget normally includes
The capital budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows.
The selling expense budget is included in the
operating budget
The sales budget is included in the
operating budget
Direct materials budget is included in the
production budget
The foundation of a profit plan is the
sales forecast
For most companies, the starting point for the annual budget is the sales forecast. All other aspects of the budget, including production, costs, and inventory levels, rely on projected sales figures.
Which of the following is normally included in the operating budget?
A. Capital budget
B. Selling expense budget
C. Cash budget
D. Budgeted balance sheet
B. Selling expense budget
An operating budget normally includes sales, production, selling and administrative, and budgeted income statement components.
In the quest to develop a more achievable budget for the coming year, the chief executive officer has elected to develop the company’s budget by using a decentralized bottom-up budget approach. A production manager’s involvement in the budget process this year will probably
A. Be negligible
B. Require development of a production budget that is forwarded to the Budget Department.
C. Require development of a production budget based on the prior year’s manufacturing activity
D. Require development of a production budget after receiving the division’s projected sales forecast
D. Require development of a production budget after receiving the division’s projected sales forecast.
A company produces farm tractors. The details of its budgeted cost of goods manufactured schedule should come from which of the following schedules?
A. Purchases, direct labor, manufacturing overhead, finished goods, and work-in-process
B. Direct materials used, direct labor, manufacturing overhead, and work-in-process
C. Cost of goods sold plus or minus the change planned in finished goods
D. Purchases, raw material, work-in-process, and finished goods
B. Direct materials used, direct labor, manufacturing overhead, and work-in-process
COGM equals all manufacturing costs incurred during the period, plus beginning work-in-process inventory, minus ending work-in-process inventory.
The starting point for creating a master budget for a proprietary secretarial school would be
A. Estimating salaries of the instructors
B. Preparing the student recruiting budget
C. Forecasting enrollment
D. Preparing a capital expenditure budget
C. Forecasting enrollment
The sales forecast drives all the other components of the operating budget. How much revenue the firm expects to bring in affects every other decision.
When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity budget to a production budget would be the
A. Expected change in the quantity of finished goods and raw material inventories
B. Expected change in the quantity of finished goods and work-in-process inventories
C. Expected change in the availability of raw materials without regard to inventory levels
D. Expected change in the quantity of work-in-process inventories.
B. Expected change in the quantity of finished goods and work-in-process inventories
Production quantities are not identical to sales because of changes in inventory levels. Both finished goods and work-in-process inventories may change during a period, thus necessitating an analysis of both inventory levels before the production budget can be set.
Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary input data for the direct labor would be the
production budget
Once the production budget has been completed, the next step is to prepare the direct labor, raw material, and overhead budgets. Thus, the production budget provides the data for the completion of the direct labor budget.
While an operating budget is a key element in planning and control, it is not likely to
A. provide subsidiary planning information
B. Establish a commitment of company resources
C. Integrate organizational activities
D. Set out long-range, strategic concepts
D. Set out long-range, strategic concepts.
Operating budgets seldom set out long-range strategic concepts because they usually deal with the quantitative allocation of people and resources. Strategic concepts are overall goals for the organization and are almost always stated in words.
The master budget
A. Can be used to determine manufacturing cost variances
B. Contains the operating budget
C. Reflects controllable costs only
D. Shows forecasted and actual results
B. Contains the operating budget
All other budgets are subset of the master budget.
All of the following are considered operating budget except the
A. Sales budget
B. Production budget
C. Capital budget
D. Materials budget
C. Capital budget
Operating budget consists of all budgets that concern normal operating activities, including the
sales budget, production budget, materials budget, direct labor budget, and factory overhead budget.
Which one of the following items should be done first when developing a comprehensive budget for a manufacturing company?
A. Development of the capital budget.
B. Determination of the advertising budget.
C. Preparation of a pro forma income statement.
D. Development of a sales budget.
D. Development of a sales budget.
The sales budget is the first to be prepared because all other elements of a comprehensive budget depend on projected sales. For example, the production budget is based on an estimate of unit sales and desired inventory levels. Thus, sales volume affects purchasing levels, operating expenses, and cash flow.
The preparation of a comprehensive master budget culminates with the preparation of the
A. Cash management and working capital budget.
B. Capital investment budget.
C. Strategic budget.
D. Production budget.
A. Cash management and working capital budget.
The creation of a comprehensive master budget begins with the preparation of the sales budget and ends with the preparation of the cash management and working capital budget.
